subject: Expense reduction experts [print this page] In each stage of the supply chain there are potential areas for cost reduction. The challenge is to identify those that can deliver savings with the least disruption and with the fastest results.
Purchasing from Suppliers
Direct and indirect materials are an obvious candidate for cost reduction. In a manufacturing organization the following big ticket items are areas that the experts will target for trimming.
Raw materials
MRO (Maintenance, Repair and Operating expenses)
Packaging
Tools and consumables used in manufacture
Essential and business support services often have more scope for cost reduction than materials. High spend areas should be the main focus although the experts will go for some "quick wins" to demonstrate what is possible. Some main areas for savings:
Energy and Utilities
Facilities, security and safety
Courier and travel
Temporary labour and HR services
Telecommunications
Production
Production expenses can be tackled in many areas. Experts will identify opportunities as follows:
In the design of the product. Product development determines up to 80% of product cost and this is hard to remove later.
In Lean Production. You can improve labor productivity, cut production throughput times, reduce inventories and cut out errors and reduce scrap.
Overhead Cost Reduction. Inventory carrying costs, power, and administration costs can be reduced.
Product Line Rationalization. Focus is on the most profitable product lines and products that are losing money should be highlighted for attention.
Quality. The cost of quality can be 15% to 40% of revenue. Experts look for areas that are over-managed.
Distribution to Customers
Potential areas of expense reduction are the big spend items, warehousing, rail and road transportation, air-freight and reverse logistics. Specialist consultants should conduct an audit to establish details of the current operation, both in-house and outsourced, including all modes of transport. Potential costs that can be reduced may come from
Operational improvement of modes of transport and rates negotiation
Review of warehousing and distribution centre operations to identify possibility for centralization
Use of technology and software to provide efficiencies
Review of the allocation and use of labour
Employee costs are a big slice of overall operating costs. Cutting staff may be costly in the long term as skills may be in short supply in a buoyant market. Reliable and noteworthy expense reduction experts will ensure sustainability of the business over short-term cost cutting.
